eBay Earnings Released, Revenue Up 13%

eBay just released its earnings report for the second quarter with revenue growth of 13%, commerce volume growth of 26%, GAAP and non-GAAP EPS growth of 9%, and the announcement that it has repurchased $1.7 billion in stock.

CEO John Donahoe said, “In a challenging second quarter, our commerce and payments platforms delivered strong enabled commerce volume growth of 26 percent. PayPal generated another strong quarter while eBay’s growth was hampered by its global password reset for all users. We continued our momentum in the four competitive commerce battlegrounds of mobile, local, global and data. We delivered new experiences for PayPal and eBay customers, extended PayPal and eBay into new markets, made it simple and easy for developers to integrate PayPal and offered new ways to help merchants grow.”

Here’s the release in its entirety:

SAN JOSE, Calif.–(BUSINESS WIRE)–Global commerce platform and payments leader eBay Inc. (NASDAQ: EBAY) today reported that revenue for the second quarter ended June 30, 2014 increased 13% to $4.4 billion, compared to the same period in 2013. GAAP earnings increased to $676 million or $0.53 per diluted share, and non-GAAP earnings increased to $868 million or $0.69 per diluted share driven by strong enabled commerce volume growth.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

eBay Inc.’s commerce ecosystem continued to gain share, with total company enabled commerce volume (ECV) increasing 26% in the second quarter to $62 billion. Mobile ECV advanced 68% to $12 billion representing 20% of volume. Mobile downloads since inception were 260 million and attracted 6.6 million new customers in the quarter. Cross-border trade grew 26%, representing $13 billion, or 22%, of total company ECV.

“In a challenging second quarter, our commerce and payments platforms delivered strong enabled commerce volume growth of 26 percent,” said eBay Inc. President and CEO John Donahoe. “PayPal generated another strong quarter while eBay’s growth was hampered by its global password reset for all users. We continued our momentum in the four competitive commerce battlegrounds of mobile, local, global and data. We delivered new experiences for PayPal and eBay customers, extended PayPal and eBay into new markets, made it simple and easy for developers to integrate PayPal and offered new ways to help merchants grow.”

PayPal net total payment volume (TPV) grew 29% with Merchant Services volume up 35% and on-eBay volume up 13%. Revenue grew to $1.9 billion. PayPal gained 4.0 million new active registered accounts to end the quarter at 152 million, up 15%. Global on-eBay penetration increased to 79.8%. PayPal signed a deal with GE to extend its relationship offering a dual branded retail credit card and committed to purchase the loan portfolio in 2016 for an estimated $1 billion, based on the size of the portfolio at that time. This provides PayPal with flexibility to expand its credit offerings to consumers and merchants while improving its ability to manage transaction expense and reinvest back into the business to accelerate payment volume growth.

eBay Marketplaces gross merchandise volume (GMV) grew 12%, with the U.S. up 10% and International up 14%. Revenue grew to $2.2 billion. Marketplaces gained 3.8 million new buyers to end the quarter with 149 million active buyers, up 14%. Top rated sellers in the company’s three largest markets grew their same-store sales 14% and offered free shipping on 56.4% of transactions across those markets. The selection of items available on Marketplaces grew to over 700 million listings, including both platform and non-platform offerings, reflecting the success of improved selling initiatives, particularly on mobile.

Operating margin — GAAP operating margin decreased to 18.2% for the second quarter of 2014, compared to 19.3% for the same period last year. Non-GAAP operating margin decreased to 24.4% in the second quarter, compared to 26.3% for the same period last year.

Taxes — The GAAP effective tax rate for the second quarter of 2014 was 15.8%, compared to 15.3% for the second quarter of 2013. For the second quarter of 2014 and 2013, the non-GAAP effective tax rate was 19.4% and 19.2%, respectively.

Cash flow — The company generated $1.5 billion of operating cash flow and $1.2 billion of free cash flow during the second quarter of 2014.

Stock repurchase programs — The company repurchased 32.4 million shares of its common stock for approximately $1.7 billion in the second quarter of 2014. As of June 30, 2014, the company’s remaining share repurchase authorization was approximately $2.2 billion.

Cash and cash equivalents and non-equity investments — The company’s cash and cash equivalents and non-equity investments portfolio totaled $12.4 billion at June 30, 2014, down from $12.8 billion at December 31, 2013.

Business Outlook

Third quarter 2014 — The company expects net revenues in the range of $4,300 – $4,400 million with GAAP earnings per diluted share in the range of $0.51 – $0.53 and non-GAAP earnings per diluted share in the range of $0.65 – $0.67.

Full year 2014 — The company expects net revenues in the range of $18,000 – $18,300 million with GAAP earnings per diluted share in the range of $0.04 – $0.09 and non-GAAP earnings per diluted share in the range of $2.95 – $3.00.

Quarterly Conference Call and Webcast

eBay Inc. will host a conference call to discuss second quarter 2014 results at 2:00 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, can be accessed through the company’s Investor Relations website athttp://investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

eBay Inc. uses its Investor Relations website at http://investor.ebayinc.com as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor, in addition to following press releases, SEC filings, public conference calls and webcasts.

About eBay Inc.

eBay Inc. (NASDAQ: EBAY) is a global commerce and payments leader, providing a robust platform where merchants of all sizes can compete and win. Founded in 1995 in San Jose, Calif., eBay Inc. connects millions of buyers and sellers and enabled $205 billion* of commerce volume in 2013. We do so through eBay, one of the world’s largest online marketplaces, which allows users to buy and sell in nearly every country on earth; through PayPal, which enables individuals and businesses to securely, easily and quickly send and receive digital payments; and through eBay Enterprise, which enables omnichannel commerce, multichannel retailing and digital marketing for global enterprises in the U.S. and internationally. We also reach millions through specialized marketplaces such as StubHub, the world’s largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world. For more information about the company and its global portfolio of online brands, visit www.ebayinc.com.

All growth rates represent year over year comparisons, except as otherwise noted. All amounts in tables are presented in U.S. dollars, rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not sum or recalculate using the rounded dollar amounts provided.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as “non-GAAP financial measures” by the Securities and Exchange Commission (SEC): non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate and free cash flow. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, see “Business Outlook,” “Non-GAAP Measures of Financial Performance,” “Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin,” “Reconciliation of GAAP Net Income to Non-GAAP Net Income and Reconciliation of GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate” and “Reconciliation of Operating Cash Flow to Free Cash Flow” included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, the future performance of eBay Inc. and its consolidated subsidiaries that are based on the company’s current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the third quarter and full year 2014, and the future growth in the Payments, Marketplaces and Enterprise businesses, mobile payments and mobile commerce, the company’s plans regarding its stock repurchase programs, and the impact of the cyberattack on the company’s results of operations. The company’s actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Factors that could cause or contribute to such differences include, but are not limited to: changes in political, business and economic conditions, any European, Asian or general economic downturn or crisis (including any economic disruption or sanctions related to Ukraine or Russia) and any conditions that affect ecommerce growth; fluctuations in foreign currency exchange rates; the company’s need to successfully react to the increasing importance of mobile payments and mobile commerce and the increasing social aspect of commerce; the company’s ability to deal with the increasingly competitive ecommerce environment, including competition for its sellers from other trading sites and other means of selling, and competition for its buyers from other merchants, online and offline; changes to the company’s capital allocation or management of operating cash; the company’s need to manage an increasingly large enterprise with a broad range of businesses of varying degrees of maturity and in many different geographies; the effect of management changes and business initiatives; the company’s need and ability to manage other regulatory, tax and litigation risks as its services are offered in more jurisdictions and applicable laws become more restrictive; any changes the company may make to its product offerings; the competitive, regulatory, payment card association-related and other risks specific to PayPal and Bill Me Later, especially as PayPal continues to expand geographically and introduce new products and as new laws and regulations related to financial services companies come into effect; the company’s ability to timely upgrade and develop its technology systems, infrastructure and customer service capabilities at reasonable cost; the company’s ability to maintain site stability and performance on all of its sites while adding new products and features in a timely fashion; and the company’s ability to profitably integrate, manage and grow businesses that have been acquired or may be acquired in the future. The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof.

More information about factors that could affect the company’s operating results is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company’s Investor Relations website at http://investor.ebayinc.com or the SEC’s website at www.sec.gov. All information in this release is as of July 16, 2014. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to the company on the date hereof. The company assumes no obligation to update such statements.

During the first quarter of 2014, we changed our reportable segments based on changes in our organizational structure which reflect the integration of our Magento platform into our Enterprise segment. Prior to this change, Magento was reported in corporate and other. Also during the quarter, we revised our internal management reporting of certain Marketplaces transactions to align more closely with our related operating metrics. Related to this change, we reclassified our Marketplaces vehicles and real estate revenues from net transaction revenues to marketing services and other revenues. Prior period amounts have been revised to conform to the current period segment reporting structure.

(2)

Represents revenue generated between our reportable segments.

Net Revenues by Geography (1)

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(In millions, except percentages)

U.S. net revenues

$

2,047

$

1,998

$

2,180

$

1,873

$

1,870

Current quarter vs prior quarter

2

%

(8

)%

16

%

—

%

5

%

Current quarter vs prior year quarter

9

%

12

%

11

%

14

%

16

%

Percent of total

47

%

47

%

48

%

48

%

48

%

International net revenues

2,319

2,264

2,350

2,019

2,007

Current quarter vs prior quarter

2

%

(4

)%

16

%

1

%

2

%

Current quarter vs prior year quarter

16

%

16

%

16

%

15

%

12

%

Percent of total

53

%

53

%

52

%

52

%

52

%

Total net revenues

$

4,366

$

4,262

$

4,530

$

3,892

$

3,877

Current quarter vs prior quarter

2

%

(6

)%

16

%

—

%

3

%

Current quarter vs prior year quarter

13

%

14

%

13

%

14

%

14

%

(1)

Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, payment recipient, customer, website that displays advertising, or other service provider, as the case may be, is located.

eBay Inc.

Unaudited eBay Inc. Supplemental Operating Data

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(In millions, except percentages)

ECV (1)

$61,639

$58,495

$59,607

$49,727

$48,776

Current quarter vs prior quarter

5

%

(2

%)

20

%

2

%

4

%

Current quarter vs prior year quarter

26

%

24

%

23

%

23

%

22

%

During the first quarter of 2014, we revised our internal management reporting of certain Marketplaces transactions to align more closely with our related operating metrics. Related to this change, we correspondingly excluded vehicles and real estate gross merchandise volume from our total gross merchandise volume. Prior period amounts have been revised to conform to the current period segment reporting structure.

(1)

Includes Marketplaces GMV (excluding vehicles and real estate), Payments Merchant Services Net TPV and eBay Enterprise Gross Merchandise Sales not earned on eBay or paid for via PayPal or Bill Me Later during the period; excludes volume transacted through the Magento platform. PayPal Merchant Services Net TPV is the total dollar volume of payments, net of payment reversals, successfully completed through our payments networks, including Bill Me Later, Venmo, and payments processed through Braintree’s full stack payments platform during the period, excludes PayPal’s and Braintree’s payment gateway businesses and payments for transactions on our Marketplaces platforms.

eBay Inc.

Unaudited Payments Supplemental Operating Data

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(In millions, except percentages)

Active registered accounts (1)

152.5

148.4

142.6

137.4

132.4

Current quarter vs prior quarter

3

%

4

%

4

%

4

%

4

%

Current quarter vs prior year quarter

15

%

16

%

16

%

17

%

17

%

Net number of payments (2)

850.2

834.4

846.1

729.4

700.6

Current quarter vs prior quarter

2

%

(1

)%

16

%

4

%

3

%

Current quarter vs prior year quarter

21

%

22

%

22

%

24

%

24

%

Net total payment volume (3)

$55,046

$52,006

$51,973

$43,837

$42,813

Current quarter vs prior quarter

6

%

—

%

19

%

2

%

4

%

Current quarter vs prior year quarter

29

%

27

%

25

%

25

%

24

%

On eBay net total payment volume as % of net total payment volume

27

%

29

%

29

%

30

%

30

%

Merchant Services net total payment volume as % of net total payment volume

73

%

71

%

71

%

70

%

70

%

Take rate (4)

3.53

%

3.55

%

3.53

%

3.70

%

3.79

%

Transaction rates (5)

Expense rate

0.95

%

0.99

%

0.97

%

1.05

%

1.04

%

Loss rate

0.28

%

0.27

%

0.32

%

0.30

%

0.31

%

Margin rate

65.1

%

64.6

%

63.5

%

63.4

%

64.4

%

Loan portfolio rates

Risk adjusted margin (6)

16.6

%

16.2

%

15.8

%

16.1

%

16.2

%

Net charge-off rate (7)

5.5

%

5.4

%

6.3

%

5.5

%

5.6

%

90-day delinquency rate (8)

2.7

%

2.8

%

2.9

%

3.2

%

2.7

%

(1)

All registered accounts that successfully sent or received at least one payment or payment reversal through our payments networks, including Bill Me Later and Venmo, but excluding users of Braintree’s unbranded payment checkout solutions, within the last 12 months and which are currently able to transact.

(2)

Total number of payments, net of payment reversals, successfully completed through our payments networks, including Bill Me Later, Venmo, and payments processed through Braintree’s full stack payments platform during the period; excludes payments sent or received through PayPal’s and Braintree’s payment gateway businesses.

(3)

Total dollar volume of payments, net of payment reversals, successfully completed through our payments networks, including Bill Me Later, Venmo, and payments processed through Braintree’s full stack payments platform during the period; excludes payments sent or received through PayPal’s and Braintree’s payment gateway businesses.

Margin Rate reflects Take Rate less Expense Rate and Loss Rate, divided by Take Rate.

(6)

The risk adjusted margin represents annualized credit portfolio revenue, excluding contra-revenue incentives to customers or merchants, less cost of funds and less net credit and fraud losses during the period, divided by average loans receivable for the period.

(7)

Net charge-off rate is the annualized ratio of net credit losses over the average daily loan receivables balance during the period. Net credit losses are the principal loan losses, exclusive of interest and late fee write offs, less recoveries of previously charged off balances.

(8)

90-day delinquency rate is the end of period Bill Me Later account balances that have missed three or more consecutive payments, divided by total ending loan receivables.

eBay Inc.

Unaudited Marketplaces Supplemental Operating Data

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(In millions, except percentages)

Active Buyers (1)

148.9

145.1

140.3

134.9

130.8

Current quarter vs prior quarter

3

%

3

%

4

%

3

%

3

%

Current quarter vs prior year quarter

14

%

14

%

14

%

13

%

13

%

Gross Merchandise Volume (2)

$20,485

$20,545

$21,503

$18,345

$18,276

Current quarter vs prior quarter

—

%

(4

)%

17

%

—

%

—

%

Current quarter vs prior year quarter

12

%

12

%

13

%

13

%

13

%

U.S. GMV as % of total GMV

39

%

40

%

39

%

40

%

40

%

International GMV as % of total GMV

61

%

60

%

61

%

60

%

60

%

eBay’s classifieds web sites, brands4friends and Shopping.com are not included in these metrics.

During the first quarter of 2014, we revised our internal management reporting of certain Marketplaces transactions to align more closely with our related operating metrics. Related to this change, we reclassified our Marketplaces vehicle and real estate revenue from net transaction revenues to marketing services and other revenues. Prior period amounts have been revised to conform to the current period segment reporting structure.

(1)

All buyers (including buyers of Half.com, StubHub, GittiGidiyor, and our Korean subsidiary) who successfully closed a transaction within the previous 12-month period. Buyers may register more than once, and as a result, may have more than one account.

(2)

Total value of all successfully closed transactions between users on Marketplaces platforms during the period regardless of whether the buyer and seller actually consummated the transaction; excludes vehicles and real estate gross merchandise volume.

eBay Inc.

Unaudited Enterprise Supplemental Operating Data

Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2014

2014

2013

2013

2013

(In millions, except percentages)

Gross Merchandise Sales (1)

$940

$936

$1,771

$787

$815

Current quarter vs prior quarter

—

%

(47

%)

125

%

(3

%)

1

%

Current quarter vs prior year quarter

15

%

16

%

11

%

13

%

21

%

(1)

Represents the retail value of all sales transactions, inclusive of freight charges and net of allowance for returns and discounts, which flow through our Enterprise commerce technologies, whether we record the full amount of such transaction as a product sale or a percentage of such transaction as a service fee; excludes volume transacted through the Magento platform.

eBay Inc.Business Outlook(In Millions, Except Per Share Amounts)

The guidance figures provided below and elsewhere in this press release are forward-looking statements, reflect a number of estimates, assumptions and other uncertainties, and are approximate in nature because the company’s future performance is difficult to predict. Such guidance is based on information available on the date of this press release, and the company assumes no obligation to update it.

The company’s future performance involves risks and uncertainties, and the company’s actual results could differ materially from the information below and elsewhere in this press release. Some of the factors that could affect the company’s operating results are set forth under the caption “Forward-Looking Statements” above in this press release. More information about factors that could affect the company’s operating results is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company’s investor relations website at http://investor.ebayinc.com or the SEC’s website atwww.sec.gov.

Three Months Ending

September 30, 2014

(In millions, except per share amounts)

GAAP

Non-GAAP (a)

Net Revenue

$4,300 – $4,400

$4,300 – $4,400

Diluted EPS

$0.51 – $0.53

$0.65 – $0.67

Twelve Months Ending

December 31, 2014

GAAP

Non-GAAP (b)

Net Revenue

$18,000 – $18,300

$18,000 – $18,300

Diluted EPS

$0.04 – $0.09

$2.95 – $3.00

(a)

Estimated non-GAAP amounts above for the three months ending September 30, 2014, reflect adjustments that exclude the estimated amortization of acquired intangible assets of approximately $70 – $80 million and estimated stock-based compensation expense and employer payroll taxes on stock-based compensation expense of approximately $165 – $175 million as well as the related tax impact.

(b)

Estimated non-GAAP amounts above for the twelve months ending December 31, 2014, reflect adjustments that exclude the estimated amortization of acquired intangible assets of approximately $340 – $360 million and estimated stock-based compensation expense and employer payroll taxes on stock-based compensation expense of approximately $675 – $695 million as well as the related tax impact.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company’s results of operations in conjunction with the corresponding GAAP measures.

Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release can be found in the tables included in this press release.

These non-GAAP measures are provided to enhance investors’ overall understanding of the company’s current financial performance and its prospects for the future. Specifically, the company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses or net purchases of property and equipment, as the case may be, that may not be indicative of its core operating results and business outlook. In addition, because the company has historically reported certain non-GAAP results to investors, the company believes that the inclusion of non-GAAP measures provides consistency in the company’s financial reporting.

For its internal budgeting process, and as discussed further below, the company’s management uses financial measures that do not include stock-based compensation expense, employer payroll taxes on stock-based compensation, amortization or impairment of acquired intangible assets, impairment of goodwill, significant gains or losses from the disposal/acquisition of a business, certain gains and losses on investments, restructuring-related charges and the income taxes associated with the foregoing. In addition to the corresponding GAAP measures, the company’s management also uses the foregoing non-GAAP measures in reviewing the financial results of the company.

The company excludes the following items from non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin and non-GAAP effective tax rate:

Stock-based compensation expense and related employer payroll taxes. This expense consists of expenses for stock options, restricted stock and employee stock purchases. The company excludes stock-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses that management does not believe are reflective of ongoing operating results. The related employer payroll taxes is dependent on the company’s stock price and the timing and size of exercises by employees of their stock options and the vesting of their restricted stock, over which management has limited to no control, and as such management does not believe it correlates to the company’s operation of the business.

Amortization or impairment of acquired intangible assets, impairment of goodwill, significant gains or losses and transaction expenses from the acquisition or disposal of a business and certain gains or losses on investments. The company incurs amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and may incur significant gains or losses from the acquisition or disposal of a business and therefore excludes these amounts from its non-GAAP measures. The company also excludes certain gains and losses on investments. The company excludes the impact of the accretion of a note receivable associated with the disposal of certain businesses. The company excludes these items because management does not believe they correlate to the ongoing operating results of the company’s business.

Restructuring. These charges consist of expenses for employee severance and other exit and disposal costs. The company excludes significant restructuring charges primarily because management does not believe they are reflective of ongoing operating results.

Other certain significant gains, losses, or charges that are not indicative of the Company’s core operating results. These are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future. The company excludes these amounts from its results primarily because management does not believe they are indicative of its current or ongoing operating results.

Tax effect of non-GAAP adjustments. This amount is used to present stock-based compensation and the other amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

In addition to the non-GAAP measures discussed above, the company also uses free cash flow. Free cash flow represents operating cash flows less purchases of property and equipment. The company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property, buildings, and equipment, which can then be used to, among other things, invest in the company’s business, make strategic acquisitions, and repurchase stock. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company’s cash balance for the period.

eBay Inc.

Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin

Three Months Ended

June 30,

June 30,

2014

2013

(In millions, except percentages)

GAAP operating income

$

794

$

750

Stock-based compensation expense and related employer payroll taxes

177

168

Amortization of acquired intangible assets within cost of net revenues

22

19

Amortization of acquired intangible assets within operating expenses

73

82

Restructuring

—

—

Total non-GAAP operating income adjustments

272

269

Non-GAAP operating income

$

1,066

$

1,019

Non-GAAP operating margin

24.4

%

26.3

%

Reconciliation of GAAP Net Income to Non-GAAP Net Income and

GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate

Three Months Ended

June 30,

June 30,

2014

2013

(In millions, except per share amounts)

GAAP income before income taxes

$

803

$

756

GAAP provision for income taxes

(127

)

(116

)

GAAP net income

$

676

$

640

Non-GAAP adjustments to net income:

Non-GAAP operating income adjustments (see table above)

272

269

Accretion of note receivable

—

(5

)

Amortization of intangibles of investments

2

2

Other significant gains, losses or charges

—

(5

)

Tax effect of non-GAAP adjustments

(82

)

(79

)

Non-GAAP net income

$

868

$

822

Diluted net income per share:

GAAP

$

0.53

$

0.49

Non-GAAP

$

0.69

$

0.63

Shares used in GAAP and non-GAAP diluted net income per-share calculation